* DAX up 19 pct since December ECB cash injection
* Still good value compared with peers over time
* Periphery cheaper, UK and Netherlands more expensive
By Simon Jessop and Scott Barber
LONDON, Mar 23 Shares of companies in Europe's
growth engine Germany have led a three-month-long European stock
rally and may still be a better punt for equity investors than
many regional peers.
A poor 2011 for stock markets as investors worried about the
threat of sovereign default turned around just in time for a new
year surge, buoyed by cheap European Central Bank cash, some
improving economic data and a lack of investment alternatives.
While that rally paused in recent days, Germany's DAX index
has still gained 19 percent since the ECB first flooded
the financial sector with long-term funds in December, against
11 percent for the broader blue-chip Euro STOXX 50
and 8 percent for Britain's FTSE 100, Europe's biggest
By contrast, German 10-year government bonds,
sought as a risk-free shelter from the euro zone crisis, have
returned just 1.2 percent in the same period.
Despite its big gains, the DAX does not look expensive
against its 10-year average on three commonly used measures:
comparing share prices to company earnings, asset values or
Germany sits bang in the middle of a list of developed
Europe peers on a blended average of the three measures, making
it cheaper than Denmark, Belgium, Ireland, Sweden, Hungary,
Britain, Norway and the Netherlands but more expensive than
Poland, Austria, Switzerland, Italy, Finland, Greece, France,
Spain and Portugal.
Robert Quinn, chief European strategist at Standard & Poor's
Capital IQ, said the DAX had further to run and he expected it
to end the year up around 9 percent from current levels, at
around 7,700 points.
The index lost nearly 15 percent last year, a move Quinn
ascribed to the weight in the DAX of companies whose prices tend
to rise and fall with the economic cycle.
"The DAX is more cyclical and got bashed up last year, but
has rebounded this year, helped by gains for banks such as
Commerzbank etc... but some of the high-quality names such as
BMW, still look undervalued," he said.
After a brief pause in a rising trend established in late
November, the DAX has resumed its rise and charts suggest more
could be on the way.
Philippe Delabarre, technical analyst at Paris-based Trading
Central, said he remained bullish on the DAX and had an initial
target of 7,355 points, from its current level of around 6,980
points, with a stop-loss at 6,600 points.
Also supportive is a rising 50-day moving average, which
helps to maintain buying pressure, and a relative strength index
that does not yet look overbought, he added.
The options market, in which investors can protect
themselves against a big move up or down, also suggests the DAX
rally could be extended.
"At an index level, if you look at the options market, the
overall picture since the start of the year is that premiums
have come down, as you'd expect them to," said Abhinandan Deb,
head of European equity derivatives strategy at Bank of America
As markets have moved higher, volatility has fallen, driving
down the cost of options and suggesting investors see no marked
change in trend for German share prices.
"Derivative markets are not really pricing in a risk of a
sharp pullback in the rally we've seen so far," Deb added.